Administration July 11, 2001

CIO Admits to Concealing Management Change from Unilever

November 7, 2001(PLANSPONSOR.com) -In the landmark UK negligence case against Merrill Lynch Investment Managers (MLIM), the group?s COO Carol Galley admitted to concealing her decision to hand the running of the equity portion of a £1bn Unilever pension fund mandate to a "wild card" fund manager.

Reported by

editors@plansponsor.com

She also conceded that the group, formerly Mercury Asset Management misled Unilever’s trustees by erroneously telling them that decisions by fund managers were made within certain limits imposed by senior in-house experts (see Unilever CIO Failed to Keep and Eye on “Wild Card” Fund Manager).

Damning Documents

In a key document, which Mercury prepared for Unilever’s pension fund’s review of its fund managers, the firm noted that stock selection decisions are implemented within an overall sector strategy framework set by the sector strategy group comprising experienced directors.

The documents was used by Unilever?s lawyer to prove that Alistair Lennard, the fund manager in question, may have ignored the recommendations of Mercury’s sector strategy committee. The lawyer went on to produce a chart that demonstrated how Lennard’s sector bets differed from the committee’s view.

Lennard on the Loose

But Galley maintained that Lennard was entitled to take these positions under Mercury’s judgmental investment policy and stated that the chart was incorrect.

When asked why she waited until 1995 to alert the pension fund trustees about the manager change, Galley said, “I wanted to see how Alistair was getting on, and since I was taking full responsibility, I felt comfortable about doing that.”

A win for Unilever would shake up the British asset management industry, opening the doors for pension funds to sue their money managers for poor performance, possibly leading to higher costs for investment firms and a more conservative approach to risk taking.

– Camilla Klein editors@plansponsor.com